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A09415 Summary:

BILL NOA09415B
 
SAME ASSAME AS S08439-A
 
SPONSORGallagher
 
COSPNSRMitaynes, Gonzalez-Rojas, Rosenthal L, Epstein, Kim, Thiele, Galef, Gottfried, Mamdani, Simon, Davila, Forrest
 
MLTSPNSR
 
Amd §§102, 203, 211, 802 & 804, add §§215 & 810, Lim Lil L
 
Relates to the disclosure of beneficial owners of limited liability companies and certain information about such beneficial owners.
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A09415 Actions:

BILL NOA09415B
 
03/07/2022referred to corporations, authorities and commissions
04/20/2022amend and recommit to corporations, authorities and commissions
04/20/2022print number 9415a
04/28/2022amend (t) and recommit to corporations, authorities and commissions
04/28/2022print number 9415b
05/03/2022reported
05/05/2022advanced to third reading cal.628
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A09415 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A9415B
 
SPONSOR: Gallagher
  TITLE OF BILL: An act to amend the limited liability company law, in relation to the disclosure of beneficial owners of limited liability companies   PURPOSE OR GENERAL IDEA OF BILL: This bill aims to modernize disclosure laws for limited liability compa- nies by defining beneficial ownership and requiring the disclosure of beneficial owners.   SUMMARY OF SPECIFIC PROVISIONS: Section one is the short title. Section two amends the LLC law to define beneficial ownership, exclude certain individuals from qualifying as beneficial owners, and capture indirect forms of beneficial ownership, including through trusts and intermediaries. Section three amends the LLC law to require that a document identifying the beneficial owners of an LLC be included with the documents necessary to organize an LLC in New York State. Section four amends the LLC law to require an amendment to the documents necessary to organize an LLC in New York State if there is a change to the beneficial owners of the LLC. Section five amends the LLC law to create a new section requiring the disclosure of beneficial ownership and permits the LLC to file a copy of the same form they file with the federal government. Section six amends the LLC law to require that a document identifying the beneficial owners of an LLC be included with the documents necessary to organize a foreign LLC in New York State. Section seven amends the LLC law, pertaining to foreign LLCS, to require an amendment to the documents necessary to organize a foreign LLC in New York State if there is a change to the beneficial owners of the foreign LLC. Section eight amends the LLC law, pertaining to foreign LLCS, to create a new section requiring the disclosure of beneficial ownership and permits the foreign LLC to file a copy of the same form they file with the federal government. Section nine is the effective date.   JUSTIFICATION: Anonymous shell companies have been exploited as vehicles for money laundering, tax evasion, organized crime, terrorist financing, and other forms of corruption for decades. In the United States, the most common form of a shell corporation is the limited liability company ("LLC"). To form an LLC, a person needs less personal information than is required to obtain a library card. The true owners of LLCs can be concealed even further through trusts and nesting layers of corporate intermediaries, facilitating money laundering, crime, and tax avoidance as assets become washed through anonymous legal entities. Billions of dollars from the illicit gains of international kleptocrats have been washed through LLCs in the United States, becoming nearly impossible to trace without tremendous effort. These phenomena have been thoroughly documented by leaks and investigations such as the Panama Papers in 2016 and Pandora Papers in 2021. Anonymous LLCs have also been vehicles for narcotics and human traffick- ers to launder their illicit profits and escape accountability. The sociologist Adam Travis has documented an "LLC effect" in housing markets, which is a statistically significant correlation between code violations and the prevalence of LLC landlords caused by the combination of anonymity and limited liability protections. This effect was demon- strated by a 2019 Senate investigation into housing code violations in the Hudson Valley. Anonymous LLCs have also continued to facilitate campaign finance violations despite recent legislation prohibiting this practice. Beneficial ownership transparency, which includes disclosure and public reporting, is the internationally-recognized gold standard for combating these forms of crime and corruption. This bill would make New York a national leader in terms of addressing the public policy problems created by anonymous shell corporations. This legislation would be a significant deterrent to corruption, fraud, and organized crime. It would ease the investigative burden on law enforcement authorities pros- ecuting financial crimes and the regulatory burden imposed on businesses required to report the beneficial owners of their customers pursuant to federal law, such as title agencies and financial institutions. Tenants would be able to know who their landlord is, researchers and policy-mak- ers would be better able to understand business and investment patterns otherwise made opaque by LLCs, and the government would be able to veri- fy the beneficial owners of LLCs involved in procurement processes.   PRIOR LEGISLATIVE HISTORY: This is a new bill.   FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS: To be determined.   EFFECTIVE DATE: This bill is effective 365 days after becoming law, provided however that the repeal, amendment,. or enactment of any rule or regulation necessary to effectuate the meaning or purpose of this law on its effec- tive date is authorized to be made or completed before its effective date.
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A09415 Text:



 
                STATE OF NEW YORK
        ________________________________________________________________________
 
                                         9415--B
 
                   IN ASSEMBLY
 
                                      March 7, 2022
                                       ___________
 
        Introduced  by  M.  of A. GALLAGHER, MITAYNES, GONZALEZ-ROJAS, L. ROSEN-
          THAL, EPSTEIN, KIM, THIELE, GALEF, GOTTFRIED, MAMDANI, SIMON,  DAVILA,
          FORREST  --  read  once and referred to the Committee on Corporations,
          Authorities and Commissions --  committee  discharged,  bill  amended,
          ordered  reprinted  as  amended  and  recommitted to said committee --
          again reported from said committee with amendments, ordered  reprinted
          as amended and recommitted to said committee
 
        AN  ACT  to  amend the limited liability company law, in relation to the
          disclosure of beneficial owners of limited liability companies
 
          The People of the State of New York, represented in Senate and  Assem-
        bly, do enact as follows:
 
     1    Section  1.  Short  title. This act shall be known and may be cited as
     2  the "LLC transparency act".
     3    § 2. Section 102 of the limited liability company law  is  amended  by
     4  adding a new subdivision (ii) to read as follows:
     5    (ii)  (1)  "Beneficial  owner" means a natural person who, directly or
     6  indirectly, (A) holds a  membership  interest  in  a  limited  liability
     7  company;  (B)  exercises  substantial  control  over  the decisions of a
     8  membership interest in a limited liability  company;  or  (C)  has  been
     9  assigned a membership interest in a limited liability company. The iden-
    10  tification of beneficial owners shall not be deemed an unwarranted inva-
    11  sion  of personal privacy pursuant to article six of the public officers
    12  law. For the purposes of this subdivision  and  for  any  references  to
    13  beneficial  owners  of  any limited liability company, the term "limited
    14  liability company" shall  include,  where  applicable,  foreign  limited
    15  liability companies and authorized foreign limited liability companies.
    16    (2)  The term "beneficial owner" shall not include: (A) a minor child;
    17  (B) a person acting as a nominee, intermediary, custodian, or  agent  on
    18  behalf of another person; (C) a person acting solely as an employee of a
    19  limited  liability  company  and whose control over or economic benefits
    20  from the limited liability company derives solely  from  the  employment
    21  status  of  the  person;  (D)  a person whose only interest in a limited
    22  liability company is through a right of inheritance, unless  the  person
    23  also  meets the requirements of paragraph one of this subdivision; (E) a
 
         EXPLANATION--Matter in italics (underscored) is new; matter in brackets
                              [ ] is old law to be omitted.
                                                                   LBD13266-14-2

        A. 9415--B                          2

     1  creditor of a limited liability company, unless the creditor also  meets
     2  the  requirements  of  paragraph  one  of  this  subdivision; or (F) any
     3  natural person whose membership interest in a limited liability  company
     4  derives  solely  from  his  or  her employment by such limited liability
     5  company and such limited liability company's organization as an  employ-
     6  ee-owned  business  or  worker cooperative, as evidenced by such limited
     7  liability company's by-laws or articles of organization.
     8    (3) If a beneficial owner of a limited  liability  company  indirectly
     9  meets the requirements of subparagraph (A), (B), or (C) of paragraph one
    10  of  this subdivision, and such company is required to disclose its bene-
    11  ficial owners, such beneficial owner shall identify each and every enti-
    12  ty or person linking such beneficial  owner  to  the  limited  liability
    13  company,  including  by  identifying  every  intermediary  by  name  and
    14  explaining the nature of the legal or economic relationship of the bene-
    15  ficial owner to each such intermediary and how each such intermediary is
    16  linked to every other intermediary and to the limited liability company.
    17  The beneficial owner may be permitted or required to provide  a  diagram
    18  to meet this disclosure requirement. If indirect beneficial ownership is
    19  exercised through a publicly traded entity, a REIT, a UPREIT, or a mutu-
    20  al  fund, the requirements of this paragraph shall only apply to benefi-
    21  cial owners holding or controlling twenty-five percent or  more  of  the
    22  equity  in  such limited liability company. This subdivision shall apply
    23  until full disclosure of beneficial  ownership  by  natural  persons  is
    24  achieved.
    25    (4)  If  indirect beneficial ownership is exercised through a trust or
    26  similar arrangement which holds or  controls,  directly  or  indirectly,
    27  twenty-five  percent  or  more  of  the  equity in the limited liability
    28  company or exercises substantial control over such company, the  limited
    29  liability  company  shall  identify  as  a beneficial owner each natural
    30  person serving as: (A) a trustee of the trust, a trust protector, or any
    31  other individual with authority, directly or indirectly, to  dispose  of
    32  trust  income,  assets,  or  principal; (B) a trust beneficiary with the
    33  right, directly or indirectly, to receive, demand, or withdraw any trust
    34  income, assets, or principal; and (C) a  grantor  or  settlor  with  the
    35  right,  directly  or  indirectly,  to  revoke  the  trust or to receive,
    36  demand, or withdraw trust income, assets or principal.
    37    § 3. Paragraphs 6 and 7 of subdivision  (e)  of  section  203  of  the
    38  limited  liability  company  law, as added by chapter 470 of the laws of
    39  1997, are amended to read as follows:
    40    (6) if all or specified members are to be liable in their capacity  as
    41  members  for  all  or specified debts, obligations or liabilities of the
    42  limited liability company as authorized pursuant to section six  hundred
    43  nine  of  this chapter, a statement that all or specified members are so
    44  liable for such debts, obligations or liabilities in their  capacity  as
    45  members  of  the  limited  liability  company  as authorized pursuant to
    46  section six hundred nine of this chapter; [and]
    47    (7) a document  identifying  the  beneficial  owners  of  the  limited
    48  liability  company  in  accordance  with  subdivision (a) of section two
    49  hundred fifteen of this article; and
    50    (8) any other provisions, not inconsistent with law, that the  members
    51  elect to include in the articles [or] of organization for the regulation
    52  of the internal affairs of the limited liability company, including, but
    53  not limited to, (A) the business purpose for which the limited liability
    54  company  is  formed, (B) a statement of whether there are limitations on
    55  the authority of members or managers or a class or  classes  thereof  to
    56  bind  the  limited  liability  company  and  (C) any provisions that are

        A. 9415--B                          3
 
     1  required or permitted to be included in the operating agreement  of  the
     2  limited  liability company pursuant to section four hundred seventeen of
     3  this chapter.
     4    §  4.  Paragraphs 8, 9 and 10 of subdivision (d) of section 211 of the
     5  limited liability company law, paragraph 10 as added by  section  18  of
     6  part  KK  of chapter 56 of the laws of 2021, are amended and a new para-
     7  graph 11 is added to read as follows:
     8    (8) the discovery of a materially false or inaccurate statement in the
     9  articles of organization; [and]
    10    (9) the decision to change any other  statement  in  the  articles  of
    11  organization[.];
    12    (10)  to  specify,  change  or  delete  the email address to which the
    13  secretary of state shall email a notice of the fact that process against
    14  the limited liability company has been electronically served upon him or
    15  her[.]; and
    16    (11) a change in the  beneficial  owners  of  such  limited  liability
    17  company  or  the  information  required  to be provided relating to each
    18  beneficial owner pursuant to section two hundred three of this article.
    19    § 5. The limited liability company law is  amended  by  adding  a  new
    20  section 215 to read as follows:
    21    §  215.  Beneficial  ownership  disclosure.    (a) A limited liability
    22  company, when disclosing its  beneficial  owners,  shall  identify  each
    23  beneficial  owner by: (1) name; (2) date of birth; (3) current  residen-
    24  tial  or business street address; (4) a unique identifying number from a
    25  non-expired passport issued by the United States or a non-expired  driv-
    26  er's  license  or  identification  card issued by this or another  state
    27  or,  if  none, a legible and credible copy of the pages of a non-expired
    28  foreign passport bearing a photograph, date of birth,  and  unique iden-
    29  tifying  information  for the beneficial owner; (5) a federal  or  state
    30  taxpayer  identification  number  or, if none, a legal entity identifier
    31  issued by the Global Legal Entity Identifier Foundation.
    32    (b) A limited liability company, when disclosing its beneficial owners
    33  to the department of state or department of taxation  and  finance,  may
    34  submit  a  copy  of  the  beneficial  ownership information such company
    35  submitted to the federal government pursuant to 31 U.S.C.  section  5336
    36  in  order  to  satisfy state disclosure requirements, provided that such
    37  federal registration is current and contains all information required by
    38  state law.
    39    § 6. Paragraphs 7 and 8 of subdivision  (a)  of  section  802  of  the
    40  limited liability company law are amended and a new paragraph 9 is added
    41  to read as follows:
    42    (7)  a  statement  that  the  foreign  limited liability company is in
    43  existence in the jurisdiction of its formation at the time of the filing
    44  of such application; [and]
    45    (8) the name and address of the authorized officer in the jurisdiction
    46  of its formation where a copy of its articles of organization  is  filed
    47  or,  if  no public filing of its articles of organization is required by
    48  the law of the jurisdiction of formation, a statement that  the  foreign
    49  limited liability company shall provide, on request, a copy thereof with
    50  all  amendments  thereto (if such documents are in a foreign language, a
    51  translation in English thereof under oath of  the  translator  shall  be
    52  attached  thereto),  and  the name and post office address of the person
    53  responsible for providing such copies[.]; and
    54    (9) a document identifying the beneficial owners of the foreign limit-
    55  ed liability company in accordance with subdivision (a) of section eight
    56  hundred ten of this article.

        A. 9415--B                          4
 
     1    § 7. Section 804 of the limited liability company law  is  amended  by
     2  adding a new subdivision (c) to read as follows:
     3    (c) Every foreign limited liability company that has received a filing
     4  receipt  entitled  "Certificate  of  authority  of .... (name of foreign
     5  limited liability company) under  section  eight  hundred  five  of  the
     6  Limited  Liability Company Law," evidencing authority as provided herein
     7  shall  amend  its application for authority upon a change in  beneficial
     8  ownership  or  the  information required to be provided relating to each
     9  beneficial owner pursuant to section   eight   hundred   two   of   this
    10  article within ninety days of such change.
    11    §  8.  The  limited  liability  company law is amended by adding a new
    12  section 810 to read as follows:
    13    § 810. Beneficial ownership disclosure.  (a) A foreign limited liabil-
    14  ity company, when disclosing its beneficial owners, shall identify  each
    15  beneficial  owner by: (1) name; (2) date of birth; (3) current  residen-
    16  tial  or business street address; (4) a unique identifying number from a
    17  non-expired passport issued by the United States or a non-expired  driv-
    18  er's  license  or  identification  card issued by this or another  state
    19  or,  if  none, a legible and credible copy of the pages of a non-expired
    20  foreign passport bearing a photograph, date of birth,  and  unique iden-
    21  tifying  information  for the beneficial owner; (5) a federal  or  state
    22  taxpayer  identification  number  or, if none, a legal entity identifier
    23  issued by the Global Legal Entity Identifier Foundation.
    24    (b) A foreign limited liability company, when disclosing  its  benefi-
    25  cial  owners  to  the  department of state or department of taxation and
    26  finance, may submit a copy of the beneficial ownership information  such
    27  company  submitted  to  the  federal  government  pursuant  to 31 U.S.C.
    28  section 5336 in order to satisfy state disclosure requirements, provided
    29  that such federal registration is current and contains  all  information
    30  required by state law.
    31    §  9.  This act shall take effect on the three hundred sixty-fifth day
    32  after it shall have become a law; provided  further,  however,  that  if
    33  part KK of chapter 56 of the laws of 2021 shall not have taken effect on
    34  or  before  such date then section four of this act shall take effect on
    35  the same date and in the same manner as such part of such chapter of the
    36  laws of 2021 takes effect. Effective immediately, the  addition,  amend-
    37  ment and/or repeal of any rule or regulation necessary for the implemen-
    38  tation  of  this act on its effective date are authorized to be made and
    39  completed on or before such effective date.
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